Fed Increase Is the Most Important Thing Ever. Oh, Wait.
The Federal Reserve's liftoff day is here, and truth be told, I find almost all of the commentary on the subject to be overwrought speculation and uninformative blather. If that sounds harsh, it is. But at least it's consistent with my other writings on this and related subjects.
You see, much of what you believe to be important isn't important at all. Most of the media focuses on items that seem critical day-to-day, but actually amount to little more than interesting, amusing, gossipy filler.
QuickTake The Fed's Countdown
Regardless of the import of the vast majority of what you have read about the Fed -- or heard or mentioned or discussed or told your clients -- most of this noise is already reflected in prices. Although many are discussing what might happen, I am telling you it already has happened.
The most regular reminder that there is too much focus on all the wrong things is the monthly employment situation report. As we have discussed many times (see this, this, this, this, this, this, this, this, and this), this is very noisy data subject to revisions and the longer trend matters much more than any single report. I think of the Fed in a similar way.
Today is different in that for the past seven years, every single data point -- and that is all each Fed meeting is, a single data point about changes in interest rates -- in this series has been a big fat “nothing done.” This makes today feel more momentous than it is.
In reality, an increase is pretty much a done deal, with fed fund futures indicating that the likelihood of a raise approaches 80 percent.
This isn't me being a curmudgeon, but rather being consistent with our other admonitions that most people spend a lot of time and mental energy worrying about the wrong things (see this, this, this, this, this, this, this, and this). They fear terrorism when they are more likely to die of high cholesterol; they are concerned about market crashes when costs, excessive trading and taxes do more harm to their returns.
And now, they're worried about a minimal rate increase, when history shows that it shouldn't be feared. Raising rates from zero with inflation modest, unemployment cut in half and the financial crisis seven years in the past is a positive, not a negative.
If you want a bit more insight into just how much we overestimate the importance of daily news, let me suggest you subscribe to Laszlo Birinyi’s wonderful research. Each year, he releases an annual look back at all of the important news stories that have run in the Wall Street Journal, New York Times, Washington Post, Bloomberg and the rest of the financial media.
The passing of time provides much needed context to the daily breathless excitement of, well, everything. After months have passed, in the clear light of day, what seemed important, even earthshaking at the time, actually didn’t amount to much of anything.
Here's a sampling of some of the things that were going to kill the economy and crush your portfolio:
Strong U.S. dollar
Falling oil prices
Another government shutdown
Rising minimum wages
New York Stock Exchange credit at record highs
Peak earnings to gross domestic product
Shanghai market crash
Standard & Poor's 500 Index death cross
Shiller CAPE ratio
Downed Russian jet
And now you can add to the list the Fed raising interest rates.
This stuff would be amusing, if it weren’t so consistently wrong.
Here is where we are: The economy has been expanding at about a 2.5 percent annual rate. This would be subpar in a normal rebound from a recession, but it's perfectly normal in a post-credit-crisis recovery. The unemployment rate has been cut in half and 11 million jobs have been created since the financial crisis ended. Wages, however, have barely risen, and the job market faces challenges ranging from automation to globalization.
One day, there will be another recession and the bull stock market will end. The Fed's decision to raise rates a quarter point in 2015 won't be the cause of either.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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